* U.S. dollar extends bounce, pound weak
* Focus on Fed's monetary policy meeting, G-20 summit
* Short USD positions at highest since March 2008
(Refiles to fix typo in first paragraph)
By Anirban Nag
SYDNEY/SINGAPORE, Sept 21 (Reuters) - The dollar rose in
thin trade on Monday, extending a bounce from late last week as
traders covered short positions ahead of a Federal Reserve
monetary policy meeting and a Group of 20 summit.
The ailing pound ceded further ground after the Bank of
England said on Monday that sterling's long-run sustainable
exchange rate may have fallen due to an increased focus on
Britain's economic imbalances following the global credit
crisis. [].
The pound <GBP=D4> fell to as far as $1.6185, from $1.6256
late in New York on Friday when it lost more than 1.1 percent
on fiscal and banking sector worries.
The euro rose to a five-month high against the pound
<EURGBP=D4> at 90.69 pence in early Asian trade.
Volumes were on the lower side in Asia, with Japan shut
until Thursday for holidays.
"It looked like markets were trying to take out weak stops
using thin liquidity this morning," said one trader in
Singapore. "But with the Fed looming over the week, we should
see people take some profits on their dollar shorts."
The euro <EUR=>, meanwhile, eased against the U.S. dollar
to $1.4665, having lost about 0.2 percent on Friday, though
strong support is seen around $1.4640. On the yen, the euro
rallied to 134.82 yen <EURJPY=>.
The dollar inched up to 91.95 yen <JPY=>, having gained
over 0.3 percent on Friday.
Against a basket of currencies, the dollar <.DXY> <=USD>
was up 0.42 percent at 76.746, off a one-year low of 76.01
struck on September 17. Still, the index has shed over 2
percent this month on speculation the U.S. dollar was fast
replacing the yen as the preferred funding currency for carry
trades.
"We could see some consolidation after the recent fall in
the U.S. dollar," said Patrick Bennett, Asia forex and rates
strategist at SocGen in Hongkong.
"But this is unlikely to lead to a reversal in the broad
weakness we have seen in the U.S. dollar as this is a liquidity
driven rally and investors are taking on more risks."
FEDERAL RESERVE MEETING
Investors have increasingly moved to riskier assets such as
stocks, commodities and higher-yielding currencies such as the
Australian and New Zealand dollars this month in search of
better returns, encouraged by growing signs of a global
recovery.
Concerns about a ballooning U.S. fiscal deficit and
prospects of rock-bottom rates there for some time have also
fuelled dollar selling.
More details on the Fed's thinking on monetary policy should
emerge from its policy meeting on Tuesday and Wednesday.
The Federal Open Market Committee (FOMC) is expected to
hold rates steady but markets will be interested for any
guidance on when the super-accommodative policy stance will be
wound back, given a recent pick up in economic data.
"The FOMC will likely continue to emphasize the need for
accommodation for an extended period," Robert DiClemente, chief
U.S. economist at Citi wrote in a note.
"But a sustained improvement in the outlook over the next
year, we think, will prompt at least a tentative beginning to
normalizing interest rates in the second half of 2010."
Indeed, some analysts argue that with short U.S. dollar
positions at their highest since March 2008, the oversold
greenback could continue getting a reprieve this week [].
It could also get some support if officials attending the
G-20 summit of developed and emerging market economies comment
on the U.S. dollar's recent weakness.
U.S. President Barack Obama said on Sunday that with the
U.S. economy recovering, now was the time to rebalance the
global economy after decades of U.S. over-consumption.
[]
Growth-linked currencies were softer, weighed down by lower
Asian stock markets.
The Australian dollar <AUD=D4> fell to $0.8632, from
$0.8572 late on Friday. The kiwi <NZD=D4>, slipped to $0.7050,
well off a 13-month high of $0.7158 last week.
(Additional reporting by Vidya Ranganathan in Singapore;
Editing by Wayne Cole & Kim Coghill)
